BT Group PLC

Fixed-line telecommunication service provider BT Group PLC (BT) is headquartered in London, the UK. It offers copper and fibre connections between exchanges, homes and businesses. The company has a business presence across Asia-Pacific, Europe, the Middle-East, Africa and the Americas.

Recent News
On 27^th June 2019, Orange S.A. announced its intention to offer around 248mn shares in BT to institutional investors. The Offering signifies about 2.5 per cent of the company's issued share capital. The Orange company will no longer be a stockholder in the company (BT Group PLC).

Financial Highlights (FY2019, £ million)

(Source: Annual Report, Company Website)

BT’s reported revenue stood at £23,428 million for the period FY19 and was reduced by 1 per cent as compared with the previous financial year, on account of regulated price reduction in Openreach and fall in their enterprise business.
Reported profit before tax surged by 2 per cent to £2,666 million as compared with the financial year 2018 of £2,616 million. The profit for the period increased from the previous year data.

Adjusted EBITDA for the financial year 2019 climbed to £7,392 million, due to an increase in revenue in its consumer business but the surge in consumer business was offset by the decrease in the revenue from its Enterprise and Openreach business.

Capital expenditure during the period surged by £441 million to £3,963 million, driven by a surge in BDUK grant funding deferral and increased investment in FTTP.

Reported basic earnings per share increased by 6 per cent to 21.8 pence as compared with the financial year 2018 of 20.5 pence. The Board proposed a final dividend per share of 10.78 pence, while total full-year dividend per share stood at 15.4 pence, same against the previous year.

Share Price Performance

Daily Chart as at July-01-19, before the market closed (Source: Thomson Reuters) 

On 1^st July 2019, at the time of writing (before the market close, GMT 10:42 AM), BT shares were trading at GBX 198.30 and increased by 0.97% against the previous day closing price. Stock's 52 weeks High and Low is GBX 268.60/GBX 190.68. The company’s stock beta stood at 0.81, reflecting lower volatility of the stock as compared to the benchmark index.

Valuation Methodology


Conclusion
The company’s growth prospects look favourable with an increase in the profit and surge in the margins in the current financial year. The board expected to hold the dividend unchanged in respect of the fiscal year 2020 as given in the outlook for earnings and cash flow.

From March 2021, FTTP’s target surged to 4 million premises. In FY19/20, capex guidance stood between £3.7-3.9 billion. In FY19/20, EBITDA will be in between £7.2-7.3bn and Normalised FCF will be in between £1.9-2.1 billion. The Board is convinced that the BT Group will earn extra value from more or faster investment near term in new customer propositions; fair, predictable and competitive pricing; accelerating migration from ADSL; a step change in customer service; accelerating FTTP build, and accelerating 5G coverage.

Based on the fundamental performance and the valuation done using the above method, we have given a “BUY” recommendation at the closing price of GBX 196.46 (as on 28th June 2019) with  single-digit upside potential based on 4.10x NTM Price/Cash flow (approx.) on FY20E cash flow per share (approx.).

Boohoo Group PLC

Boohoo Group Plc (BOO) is among the top online fashion retail company in the UK. The company is having a global presence within the UK, Europe, Australia and the US being the primary markets. The company products are targeted at the age group of 16-30 years with its brands such as boohoo, PrettyLittleThings, NastyGal and boohooMAN.

Q1 FY2020 Trading Update (as on 12^th June 2019)
The group’s total revenue increased by 39 per cent to £254.3 million as compared to £183.6 million in Q1 FY19, due to revenue growth across all geographies with the UK surged by 27 per cent and international rose by 56 per cent. Gross margin stood at 55 per cent, a slight decrease from the previous year data. Net cash was £194 million. The company acquired the intellectual property assets and brand of MissPap.

Financial Highlights (FY2019, £ million)

(Source: Final Results, Company Website)

Revenue growth across all territories and brands was strong, with revenue for the year increased by 48% in FY 2019 (47% CER) to £856.9 million, helped by celebrity influencers and social media marketing which continued to drive consumers to its fast fashion.

Gross profit rose by 53% to £469m, while the gross profit margin increased by 190 basis points to 54.7%. Driven by improved gross margin across the group, adjusted EBITDA rose to £84.5 million, representing an increase of 49%, while adjusted EBITDA margin reported a slight improvement to 9.9%. While adjusted profit before tax rose by 49% to £76.3 million, adjusted diluted earnings per share was 4.15p, up by 29% on the prior year. Net cash for the FY19 increased by £57.7 million to £190.7 million.

Share Price Performance

Daily Chart as at July-01-19, before the market closed (Source: Thomson Reuters) 

On 1^st July 2019, at the time of writing (before the market close, GMT 12:26 PM), BOO shares were trading at GBX 211.10 and decreased by 0.283% against the previous day closing price. Stock's 52 weeks High and Low is GBX 249.50/GBX 146.39. The company’s stock beta stood at 1.39, reflecting higher volatility of the stock as compared to the benchmark index.

Valuation Methodology


Conclusion
The company faces stiff competition from the competitors which may offer a better brand image or quality, thereby eroding market share. Moreover, the company works in a highly erratic industry, failure to keep abreast of which could lead to a decline in sales. However, the group operates in the attractive and growing e-commerce market, which offers immense opportunities beyond the local borders as well.

The group expects revenue growth for FY2020 to be around 25%-30%, as the company continues to make investments across the group. The medium-term adjusted EBITDA margin is forecasted to be around 10%.

Based on the decent prospect and supported by valuation done using the above method, we have given a “SPECULATIVE BUY” recommendation at the closing price of GBX 211.70 (as on 28th June 2019) with a single digit-upside potential based on 2.10x NTM EV/Sales (approx.) on FY20E sales (approx.).
 

SPIRAX-SARCO ENGINEERING PLC

Spirax-Sarco Engineering PLC (SPX) is a multi-national industrial engineering company. The group has a global reach with 127 operating units across 47 countries. The company operations are focussed on electrical thermal energy solutions, niche pumping, control and management of steam and associated fluid path technologies.

Trading Update (as on 15^th May 2019)
In the first four months of the year 2019, despite the softening macro-economic environment, organic sales growth for the company remained at similar levels to the H2 FY2018. On an organic basis, operating profit surged against the corresponding period of the previous year, while operating margins were consistent with the full-year prospects.

At April 30, 2019, the net debt stood at £203 million. On May 13, 2019, the company announced the accomplishment of 158-million-euroacquisition of Thermocoax, with the granting of approvals in Germany, the United States and France.

Financial Highlights (FY2018, £ million)

(Source: Annual Report, Company Website)

For the Financial year ending December 2018, the company’s adjusted reported revenue stood at £1,153.3 million as compared to £998.7 million for the same period of last year. There was an increase of 15.5 per cent due to a strong performance by Technology business and Steam Specialties business. As a result of acquisitions made in the year 2017, there had been an increase in sales by 12 per cent.

The company’s reported operating profit stood at £299.1 million for FY2018 against £198.9 million in FY2017. The company’s reported Profit for the year stood at £223.4 million for FY2018 as compared to £157.9 million for FY2017.
The Basic earnings per share stood at 303.1 pence for FY2018 as compared to 214.4 pence for FY2017. The company’s diluted earnings per share for FY2018 stood at 302 pence as compared to 213.6 pence in FY2017. Dividend per share for FY2018 stood at 100 pence against 87.5 pence for FY2017.

Share Price Performance

Daily Chart as at July-01-19, before the market closed (Source: Thomson Reuters) 

On 1^st July 2019, at the time of writing (before the market close, GMT 1:45 PM), SPX shares were trading at GBX 9,295 and increased by 1.2% against the previous day closing price. Stock's 52 weeks High and Low is GBX 9,315/GBX 5,875. The company’s stock beta stood at 0.96, reflecting slightly lower volatility of the stock as compared to the benchmark index.

Conclusion
The company’s financial performance was impacted by the negative effect of exchange rate movement in the current financial year. The company had shown good top-line and bottom-line performance in the current financial year. The company is facing fierce competition from its competitors and is impacted by economic and political instability.

As the company is having its operations in multiple countries, its performance is impacted by any breach created by legal and regulatory requirements. However, global industrial production growth rates remain uncertain, though the company serves a wide range of industries and have a great diversity of end markets. This will help it to cushion fluctuations in seasonal and cyclical demand.

Based on the headwinds faced by the company, we have given a “WATCH" recommendation at the current price of GBX 9,295 (as on 1^st July 2019, before the market close), while we look for any upcoming catalysts.
 

Plus500 Ltd

Plus500 Ltd (PLUS) is an Israel based provider of CFDs (Contracts for Difference). The Company innovate trading technology and operates an online trading platform for shares, forex, commodities, ETFs, options and indices for retail customers. The Company conducts operations in the geographic areas of Europe, Australia, Gibraltar, Asia and the Middle East.

Q1 2019 Trading Update (as on 12^th April 2019)
The company’s revenue decreased by 65 per cent to $53.9 million as compared to $154.8 million in Q4 FY2018, while revenue was also down from the corresponding period of the last year data. The number of new customers increased by 10 per cent to 21,306 against the 19,405 in Q4 FY18, while new customers decreased from the previous year same period data. ARPU (Average Revenue per User) and AUAC (Average User Acquisition Cost) stood at $550 and $1,230 respectively.

Financial Highlights (FY2018, US$ million)

(Source: Annual Report, Company Website)

The company’s reported revenue surged by 65 per cent to $720.4 million as compared with the financial year 2017’ of $437.2 million in FY17, due to an increase in all key geographies. EBITDA rose by 95 per cent to $506 million as compared with the financial year 2017 data. Earnings per share climbed by 90 per cent to $3.33. In 2018, ARPU stood at $2,365, an increase against the $1,379 for 2017.

Share Price Performance

Daily Chart as at July-01-19, before the market closed (Source: Thomson Reuters) 

On 1^st July 2019, at the time of writing (before the market close, GMT 2:34 PM), PLUS shares were trading at GBX 532.40 and increased by 1.99% against the previous day closing price. Stock's 52 weeks High and Low is GBX 2,076/GBX 397.18.

Conclusion
Some key risks are Legal and Jurisdictional Risk, Regulatory Risk, Business Risk, Market Risk, Credit Risk, Liquidity Risk, Operational Risk, and Information and Data Security Risk.

The company had a tough quarter and have reduced its forecasted full-year profit by a third. Last year, European regulatory agencies put restrictions on the sale of CFD’s, which will allow investors to bet on the prices of the assets without holding the asset.

The company stressed the impact created by the fall in volatility in its released statement. Its main emphasis was on the restriction put on leverage limit from which the investor makes money. While the group believes it is well prepared for the various UK Brexit scenarios and given its separate EU licence in Cyprus.

Global political uncertainties make the financial markets soft and will gradually decrease the number of trading prospects for investors. According to most of the trader, the new leverage rule is the main reason which led to a decrease in customers and trading. Plus500 have seen a decline to 97,921 customers in the first quarter as against 218,187 active customers data from last year.

Based on the headwinds faced by the company, we have given a “WATCH" recommendation at the current price of GBX 532.40 (as on 1^st July 2019, before the market close), while we look for any upcoming catalysts.
 

Petra Diamonds Ltd

Petra Diamonds Ltd (PDL) is a Jersey, United Kingdom-based diamond mining group. The group specialises in the exploration, mining and sale of rough diamonds, and has one of the world's largest diamond resources. The company's operations are differentiated in two operating segments: Mining and Exploration.

Q3 FY19 Trading Update (as on 15^th April 2019)
Revenue for the quarter Q3 FY19 stood at US$135.2m and was down by 7% on the previous year’s US$145.7m. Rough diamond prices rose by around 1% on a like-for-like basis against the H1 FY 2019. Finsch mine had a particularly poor quarter, with production down by 30% to 387,370 carats, some 55,000 carats below plan, due to delay to the planned winder upgrade and belt tear on the key underground conveyor.  Cullinan diamond production was up by 22% to 432,001 carats, with the new block cave making a strong contribution in terms of increased tonnage. Koffiefontein made a strong recovery from its previous problems, as did Williamson. Net debt at the period end was US$553.1m.

Financial Highlights (H1 FY2019, US$ million)

(Source: Interim Report, Company Website)

In the first half of FY 2019, production increased by 10% to 2,019,147 carats. Driven by a 15% increase in sales volumes, revenue increased by 8% to $207.1 million during the period. Due to lower rough diamond prices and a rise in mining costs, profit from mining activities was down by 7% to $80.1 million. Adjusted EBITDA decreased by 6% to $75.6 million, resulting in a decline in adjusted EBITDA margin from 42% in H1 FY 2018 to 36% in H1 FY 2019. Net loss after tax reduced to $57.9 million, while basic loss per share was reported at US 6.57 cents, against a loss of US 15.92 cents reported in H1 FY 2018.

Share Price Performance

Daily Chart as at July-01-19, before the market closed (Source: Thomson Reuters) 

On 1^st July 2019, at the time of writing (before the market close, GMT 3:33 PM), PDL shares were trading at GBX 19.96 and increased by 1.423% against the previous day closing price. Stock's 52 weeks High and Low is GBX 58.30/GBX 16.63. The company’s stock beta stood at 0.59, reflecting lower volatility of the stock as compared to the benchmark index.

Valuation Methodology


Conclusion
Petra Diamonds is a leading independent diamond mining group company with substantial diamond reserves. Strong project portfolio enables the company to enhance its business growth objectives. Though the news of the appointment of the CEO (Richard Duffy) is a positive development, given his impressive experience in mining, Africa and finance, the continued rise in net debt despite decreased capital expenditure is still a matter of concern. Production guidance for the full year has been maintained at between 3.8-4.0 million carats. The company expects market conditions to remain stable during the second half of 2019; recent weakness in the diamond market had hit the company's financials.
On the basis of above rationale and valuation done by using above method, we have given a “Speculative BUY” recommendation at the closing price of GBX 19.68 (as on June 28, 2019), based on the 1.67x NTM Peers average EV/Sales (approx.) on FY19E sales (approx.).

Carnival PLC

Carnival Plc (CCL) is a leisure travel group that operates in Europe, Asia, North America, and Australia. The company split its business activities into four operating segments. Carnival Cruise Line, Holland America Line, Seabourn, Costa, and AIDA are few of the brand name that operates under Carnival Plc.

Financial Highlights (H1 FY2019, US$ million)

(Source: Interim Reports, Company Website)

The company’s revenue increased from $8.5 billion in H1 FY18 to $9.5 billion in H1 FY2019, due to an increase in cruise segment and tour and other business. In H1 FY19, net income stood at $787 million, a decrease from the corresponding period of the last year data, while diluted earnings per share were $1.13 cents. The adjusted net income declined to $795 million in H1 FY2019 against the $864 million in H1 FY2018, while adjusted diluted earnings per share stood at $1.15 cents.

Share Price Performance

Daily Chart as at July-01-19, before the market closed (Source: Thomson Reuters) 

On 1^st July 2019, at the time of writing (before the market close, GMT 3:55 PM), CCL shares were trading at GBX 3,540 and increased by 1.75% against the previous day closing price. Stock's 52 weeks High and Low is GBX 5,030/GBX 3,354. The company’s stock beta stood at 0.63, reflecting lower volatility of the stock as compared to the benchmark index.

Valuation Methodology


Conclusion
Though the economy is expected to grow, the rate is forecasted to slow down, impacting the demand for luxury products like leisure travel. However, as cumulative advanced bookings for the remainder of 2019 are ahead of the prior year, even with higher capacity, there is less inventory remaining for sale than at the same time last year, demand has remained resilient despite growing concerns in the broader market about slowing global economic growth. Through a consistent strategy of creating demand in excess of measured capacity growth while leveraging its industry-leading scale, the company is on track to delivering double-digit earnings growth and improving return on invested capital.
Compared to March guidance of $4.35 to $4.55 for adjusted earnings per share, the company revised its expected guidance to be in the range of $4.25 to $4.35. Though the company had to cut earnings guidance due to a steep rise in fuel costs and the stronger dollar, the underlying business remains robust, reflected by strong bookings. Consistent demand trends build confidence in the prospects of the company.

Based on the decent prospect and supported by valuation done using the above method, we have given a “BUY” recommendation at the closing price of GBX 3,479 (as on 28th June 2019) with a single digit-upside potential based on 2.23x NTM EV/Sales (approx.) on FY19E sales (approx.).
 
 
*In valuation Methodology, all USD figures have been converted into GBP; USD: GBP - 0.79.
*All forecasted figures and peers have been taken from Thomson Reuters.
*The Buy/Speculative Buy recommendation is valid for the current price as covered in the report (as on July-01-19).

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